1. 2007 HTS Amendments: Import Tariff Changes Pisani & Roll Teleconference July 14, 2006 John Smirnow Of Counsel Pisani & Roll 1717 K Street, NW Suite 600 Washington, DC 20036 Tel 202.466.0960 Fax 877.674.5789 jsmirnow@worldtradelawyers.com www.worldtradelawyers.com

2. 2 Overview This presentation is Part I (overview of amendment process and key changes). Part II will follow in early October (amendment interpretations and implementation specifics). This is the third major revision of the Harmonized Schedule (“HS”) by the World Customs Organization (“WCO”) (fourth revision underway). 2007 amendments intended to update the HS and clarify the classification of particular goods, focus on high technology. Some changes designed to facilitate monitoring and control of various products of social and environmental concern, e.g., bamboo, mercury, CFC’s, asbestos, etc. WCO is seeking private-sector input on streamlining the amendment process. WCO is also considering a binding ruling process for less developed countries.

3. 3 WCO Government to Government discussions International Chamber of Commerce (“ICC”) Harmonized System Committee (“HSC”)

4. 4 WCO cont’d. The HSC oversees modifications to the HS. In addition, the HSC serves as an international dispute settlement body regarding tariff classification. Important classification disputes resolved by the HSC include: –Whether LAN equipment falls within the category of a computer or telecommunications equipment? –Whether high-fat cream cheese is cheese or a dairy spread? –The demarcation line between passenger motor vehicles and vehicles for the transport of goods. Currently, the HSC is reviewing, e.g., the tariff classification for transistor modules. The HSC will also resolve government to government disputes resulting from the 2007 amendments. Industry coalitions have succeeded in influencing HSC classification decisions.

5. 5 Primary Amendments 2007 amendments were adopted by the WCO in June 2004, and will enter into force on January 1, 2007. The most significant changes cover high technology products classified within Chapters 84, 85, and 90. For example, a new chapter note has been created for multichip integrated circuits. Other notable changes cover textiles, pipe and tube products, automotive parts, oscilloscopes and multimeters, and toys.

6. 6 Textiles New Note 13 to Section XI (elastomeric yarn) - For the purposes of this Section and, where applicable, throughout the Nomenclature, the expression “elastomeric yarn” means filament yarn, including monofilament, of synthetic textile material, other than textured yarn, which does not break on being extended to three times its original length and which returns, after being extended to twice its original length, within a period of five minutes, to a length not greater than one and a half times its original length.

7. 7 Textiles cont’d. Chapter 54 (man-made fibers) - The term man-made fibers means staple fibers and filaments of organic polymers produced by manufacturing processes, either: Note 1 (a) - Delete and substitute: (a) By polymerisation of organic monomers to produce polymers such as polyamides, polyesters, polyolefins or polyurethanes, or by chemical modification of polymers produced by this process (for example, poly(vinyl alcohol) prepared by the hydrolysis of poly(vinyl acetate)); or Note 1 (b) - Delete and substitute: (b) By dissolution or chemical treatment of natural organic polymers (for example, cellulose) to produce polymers such as cuprammonium rayon (cupro) or viscose rayon, or by chemical modification of natural organic polymers (for example, cellulose, casein and other proteins, or alginic acid), to produce polymers such as cellulose acetate or alginates. Note 1. Second paragraph - Delete and substitute: The terms “synthetic” and “artificial”, used in relation to fibres, mean: synthetic: fibres as defined at (a); artificial: fibres as defined at (b). Strip and the like of heading 54.04 or 54.05 are not considered to be man-made fibres.

8. 8 Pipe and Tube Products Subheadings 7304.10 to 7304.90 Delete and substitute: Line pipe of a kind used for oil or gas pipelines: 7304.11--Of stainless steel 7304.19--Other -Casing, tubing and drill pipe, of a kind used in drilling for oil or gas : 7304.22--Drill pipe of stainless steel 7304.23--Other drill pipe 7304.24--Other, of stainless steel 7304.29--Other -Other, of circular cross-section, of iron or non-alloy steel : 7304.31--Cold-drawn or cold-rolled (cold-reduced) 7304.39--Other

9. 9 Chapter 84 The definition for automatic data processing (“ADP”) machines has been revised to: –Recognize that ADP machines are digital; and –Clarify the classification of separately presented printers, network equipment, loudspeakers, microphones, cameras, and monitors and projectors used in conjunction with a computer.

10. 10 Revised Note 2 to Chapter 84 Note 2 to Chapter 84. First paragraph - Delete and substitute: Subject to the operation of Note 3 to Section XVI and subject to Note 9 to this Chapter, a machine or appliance which answers to a description in one or more of the headings 84.01 to 84.24, or heading 84.86 and at the same time to a description in one or other of the headings 84.25 to 84.80 is to be classified under the appropriate heading of the former group or under heading 84.86, as the case may be, and not the latter group.

11. 11 Multi-function Printers New printer-related subheadings have been created. For example, subheading 8443.31 provides for “Machines which perform two or more of the functions of printing, copying or facsimile transmission, capable of connecting to an automatic data processing machine or to a network.”

12. 12 ADP Definition Note 5 to Chapter 84 - Delete and substitute Note 5: (A) For the purposes of heading 84.71, the expression “automatic data processing machines” means machines capable of: (i)Storing the processing program or programs and at least the data immediately necessary for the execution of the program; (ii)Being freely programmed in accordance with the requirements of the user; (iii) Performing arithmetical computations specified by the user; and (iv)Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run. (B)Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. (C)Subject to paragraphs (D) and (E) below, a unit is to be regarded as being part of an automatic data processing system if it meets all of the following conditions : (i)It is of a kind solely or principally used in an automatic data processing system; (ii)It is connectable to the central processing unit either directly or through one or more other units; and (iii)It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

13. 13 ADP Definition cont’d. Note 5 to Chapter 84 (contin.) - Separately presented units of an automatic data processing machine are to be classified in heading 84.71. However, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (C) (ii) and (C) (iii) above, are in all cases to be classified as units of heading 84.71. (D)Heading 84.71 does not cover the following when presented separately, even if they meet all of the conditions set forth in Note 5 (C) above: (i)Printers, copying machines, facsimile machines, whether or not combined; (ii)Apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network); (iii)Loudspeakers and microphones; (iv)Television cameras, digital cameras and video camera recorders; (v)Monitors and projectors, not incorporating television reception apparatus. (E)Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.

14. 14 New Note 9 to Chapter 84 New Note 9 to Chapter 84 - Insert the following new Note 9: (A)Notes 8 (a) and 8 (b) to Chapter 85 also apply with respect to the expressions “semiconductor devices” and “electronic integrated circuits”, respectively, as used in this Note and in heading 84.86. However, for the purposes of this Note and of heading 84.86, the expression “semiconductor devices” also covers photosensitive semiconductor devices and light emitting diodes. (B) For the purposes of this Note and of heading 84.86, the expression “manufacture of flat panel displays” covers the fabrication of substrates into a flat panel. It does not cover the manufacture of glass or the assembly of printed circuit boards or other electronic components onto the flat panel. The expression “flat panel display” does not cover cathode-ray tube technology. (C)Heading 84.86 also includes machines and apparatus solely or principally of a kind used for : (i)the manufacture or repair of masks and reticles; (ii)assembling semiconductor devices or electronic integrated circuits; and (iii)lifting, handling, loading or unloading of boules, wafers, semiconductor devices, electronic integrated circuits and flat panel displays. (D)Subject to Note 1 to Section XVI and Note 1 to Chapter 84, machines and apparatus answering to the description in heading 84.86 are to be classified in that heading and in no other heading of the Nomenclature.

15. 15 New Heading 84.86 New Heading 84.86 – Machines and apparatus of a kind used solely or principally for the manufacture of semiconductor boules or wafers, semiconductor devices, electronic integrated circuits or flat panel displays; machines and apparatus specified in Note 9 (C) to this Chapter; parts and accessories.

16. 16 New Note 4 to Chapter 85 New Note 4 to Chapter 85 - 4.-For the purposes of heading 85.23: (a) “Solid-state non-volatile storage devices” (for example, “flash memory cards” or “flash electronic storage cards”) are storage devices with a connecting socket, comprising in the same housing one or more flash memories (for example, “FLASH E²PROM”) in the form of integrated circuits mounted on a printed circuit board. They may include a controller in the form of an integrated circuit and discrete passive components, such as capacitors and resistors; (b) The term “smart cards” means cards which have embedded in them one or more electronic integrated circuits (a microprocessor, random access memory (RAM) or read-only memory (ROM)) in the form of chips. These cards may contain contacts, a magnetic stripe or an embedded antenna but do not contain any other active or passive circuit elements.

17. 17 New Note 6 to Chapter 85 New Note 6 - For the purpose of heading 85.36, “connectors for optical fibres, optical fibre bundles or cables” means connectors that simply mechanically align optical fibres end to end in a digital line system. They perform no other function, such as the amplification, regeneration or modification of a signal.

18. 18 Revised Note 5 to Chapter 85 Present Note 5 (renumbered 8) - Delete and substitute: 8.-For the purposes of headings 85.41 and 85.42 : (b) “Electronic integrated circuits” are : (i) Monolithic integrated circuits in which the circuit elements (diodes, transistors, resistors, capacitors, inductances, etc.) are created in the mass (essentially) and on the surface of a semiconductor or compound semiconductor material (for example, doped silicon, gallium arsenide, silicon germanium, indium phosphide) and are inseparably associated; (ii) Hybrid integrated circuits in which passive elements (resistors, capacitors, inductances, etc.), obtained by thin- or thick-film technology, and active elements (diodes, transistors, monolithic integrated circuits, etc.), obtained by semiconductor technology, are combined to all intents and purposes indivisibly, by interconnections or interconnecting cables, on a single insulating substrate (glass, ceramic, etc.). These circuits may also include discrete components; (iii) Multichip integrated circuits consisting of two or more interconnected monolithic integrated circuits combined to all intents and purposes indivisibly, whether or not on one or more insulating substrates, with or without leadframes, but with no other active or passive circuit elements. For the classification of the articles defined in this Note, headings 85.41 and 85.42 shall take precedence over any other heading in the Nomenclature, except in the case of heading 85.23, which might cover them by reference to, in particular, their function.

19. 19 Revised Heading 85.17 Heading 85.17 - Delete and substitute: Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 84.43, 85.25, 85.27 or 85.28.

20. 20 Revised Heading 85.23 Headings 85.23 and 85.24 - Delete and substitute: 85.23 Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37.

21. 21 Question Regarding RFID Inlays & Labels We are currently using the HTS Code of 8543.81.0000 for all exports of RFID inlays and labels. Will this code be affected by these changes? Subheadings 8543.81 to 8543.89 - Delete and substitute: 8543.70- Other machines and apparatus. Proximity cards and tags will now be classified within subheading 8523.52, which provides for “Smart Cards.”

22. 22 Revised Heading 85.36 Heading 85.36 - Delete and substitute: 85.36 Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits (for example, switches, relays, fuses, surge suppressors, plugs, sockets, lamp-holders and other connectors, junction boxes), for a voltage not exceeding 1,000 volts; connectors for optical fibres, optical fibre bundles or cables.” New subheading 8536.70 - Insert the following new subheading 8536.70: 8536.70 - Connectors for optical fibres, optical fibre bundles or cables.

23. 23 Revised Heading 85.42 Heading 85.42 and Subheadings 8542.31-.90 - Delete and substitute: 85.42 Electronic integrated circuits. - Electronic integrated circuits: 8542.31-- Processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits 8542.32-- Memories 8542.33-- Amplifiers 8542.39-- Other 8542.90-- Parts.

24. 24 Auto Parts Subheadings 8708.3 to 8708.99 - Delete and substitute: 8708.30-Brakes and servo-brakes; parts thereof 8708.40-Gear boxes and parts thereof 8708.50-Drive-axles with differential, whether or not provided with other transmission components, and non-driving axles; parts thereof 8708.70-Road wheels and parts and accessories thereof 8708.80-Suspension systems and parts thereof (including shock-absorbers) -Other parts and accessories : 8708.91--Radiators and parts thereof 8708.92--Silencers (mufflers) and exhaust pipes; parts thereof 8708.93--Clutches and parts thereof 8708.94--Steering wheels, steering columns and steering boxes; parts thereof 8708.95--Safety airbags with inflater system; parts thereof 8708.99--Other.

25. 25 Note 3 to Chapter 90 Note 3 - Delete and substitute: The provisions of Notes 3 and 4 to Section XVI apply also to this Chapter.

26. 26 Oscilloscopes and Multimeters Subheading 9030.20 - Delete and substitute: 9030.20-Oscilloscopes and oscillographs. Subheadings 9030.3 to 9030.39 - Delete and substitute: Other instruments and apparatus, for measuring or checking voltage, current, resistance or power: 9030.31--Multimeters without a recording device 9030.32--Multimeters with a recording device 9030.33--Other, without a recording device 9030.39--Other, with a recording device

27. 27 Chapter 95 New Note 4 - Insert the following new Note 4: Subject to the provisions of Note 1 above, heading 95.03 applies, inter alia, to articles of this heading combined with one or more items, which cannot be considered as sets under the terms of General Interpretative Rule 3 (b), and which, if presented separately, would be classified in other headings, provided the articles are put up together for retail sale and the combinations have the essential character of toys. Headings 95.01 to 95.03 - Delete and substitute: 95.03Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not; puzzles of all kinds. New Note 1 (v) to Chapter 95 (utilitarian articles excluded from Chapter 95) - Insert the following new Note 1 (v): Tableware, kitchenware, toilet articles, carpets and other textile floor coverings, apparel, bed linen, table linen, toilet linen, kitchen linen and similar articles having a utilitarian function (classified according to their constituent material).

28. 28 Implementation While the United States is expected to implement the amendments as of January 1, 2007, other member countries are expected to face implementation delays. During the first and second revisions to the HS, only 45% and 58%, respectively, of member countries were able to implement the changes on time. September 2006 WCO conference expected to provide additional insight on implementation.

29. 29 Follow-Up September 2006 WCO conference –Questions for WCO staff –Questions raised by member administrations –Implementation estimates/delays –Explanatory Notes October 2006 teleconference –Suggestions on topic areas, presentation format

30. 30 Pisani & Roll Services Update Tariff Classification Databases Assist with Product Reviews and Classification Obtain Binding Rulings Potential Classification Opinion Letters WCO Advocacy

31. 31 Questions? Today’s presentation September 2006 WCO conference October 2006 presentation

32. 32 Contact Information John Smirnow, Of Counsel - 202. 508.8256 jsmirnow@worldtradelawyers.com Robert Pisani, Partner - 202.466.0960 rpisani@worldtradelawyers.com Michael Roll, Partner – 310.826.4410 mroll@worldtradelawyers.com